Volatile markets can be very difficult to navigate. At the same time, they offer great opportunities for high profits. In this overview, we discuss the most important things that help investors, to stay the right course in times of extreme volatility.

It is important to stick to his plan

DEMO / Test IconTrading always requires planning. A proper plan becomes even more important when markets are volatile, since Retailers need to respond quickly. It is important, stick to the original plan in the event of large price fluctuations, as this causes great emotions. Investors should ensure that they are well preparedbefore you make a trade. Once a position is established, you have perhaps little time to analyze the movements of the market, so you should just stick to the original plan. Plan changes “on the fly” often lead to bad results.

It is recommended to adjust the position size

Coincierge Icon 23Extreme volatility offers traders the Chance to make big profits. However, losses can also be significantwhen trade and markets go in the wrong direction. Against this background, it is important to Limit position sizeto successfully survive volatility and nevertheless, you can benefit from the opportunities offered. Some traders feel the urge to Increase position sizeif you feel that the markets are ready for a big move. This temptation should be resisted. Seeing several options, it is better, take multiple positions with limited size, instead of betting big on a trade.

Use Limit Orders

ICON Fees and CostsSince the Market situation changes quickly, it is extremely important, get the best price for every order. Therefore, one should use limit orders only. You can place such orders slightly above (or below – depending on the direction of the trade) to increase the chances of entering a trade in times of great volatility, but you should don’t be too generous. A good price is a very important component of successful trading. It’s better to avoid a trade altogether than to enter at a price you didn’t expect.

Wider Stop Loss Orders

Smartphone Mobile Broker IconWhen markets move fast, can prices easily break key levelseven if these are strong. Stop loss orders should be widerif you want to avoid being stopped on a good trade. The trade needs some room to” breathe ” when the market is volatile. Having adjusted the size of the position and remaining within the usual risks, wider stops should not cause problems.

Cautious with leverage

Risk-Risk-IconLeverage is a double-edged sword. It helps to make more money with a successful trade, but it biting them” also tough if the trade goes in the wrong direction. It is therefore advisable to trade with leverage rather conservatively when markets are volatile. Volatility itself is a great way to make money. Therefore, one should not try to artificially increase potential profits through excessive leverage. This can quickly damage your own trading account if the market suddenly turns against you.

Focus on short-term trades

Online Broker IconIn times of extreme volatility, markets may move very quickly in both directions. Therefore, traders should focus on focus on short-term tradesso you can quickly take your profits off the table before the direction of the market changes again. Even traders who are comfortable with calm position trading will be better off, to take at least some profitswhen trading in volatile markets goes in the right direction.

It may be worth leaving the positions in parts

Coincierge Icon 20There are no magic indicator that will surely indicate when the market changes its direction. One should therefore leave one’s positions in parts in order to increase the chances of making the most of the movement of the market. This tactic also helps, Limit losses (or to avoid) if the trade went according to the original plan, but then suddenly changes course. In addition, it is easier to withstand larger fluctuationsif you have already taken some money from the table.

“Breakthroughs” usually work well in volatile markets

Coincierge Icon 18Extreme volatility is a time when market movements are very strong. Therefore, stocks easily break through levels and attract more speculative traderswhich is good for the continuation of the market movement. In this environment, it works better in most cases, to go with the dynamics of the market. False breakthroughs can also occur frequently, but the percentage of false breakthroughs will be lower than in times of quiet, area-bound markets.

Do not catch “falling knives”!

Bad Down Bad-IconAs already mentioned, Momentum an important factor in volatile markets. The trend is your friend, and this is especially true in times of volatility. While “Bottom Picking” may seem attractive as it promises outsized profits, the Risks in volatile markets often too great. In addition, it is much more difficult to determine the potential bottomwhen prices move very quickly compared to ordinary times.

RSI and similar indicators are of little use in volatile markets

Fees & amp; Costs-IconBy definition, volatility causes oversized movements. Therefore, Instruments overbought or oversoldbut that does not mean anything in such an environment. Many investors will find that an” overbought “instrument recovers with strong momentum, while the” oversold ” instrument continues to fall like a stone. It is more important to observe such momentum, rather than worry about indicators that scream “overbought” or “oversold”. Such indicators work much better in quieter markets.

Once a major level has been breached, minor levels can have little impact on trading dynamics

When markets are extremely volatile, Focus investors on key technical levels. Smaller levels that might have served as material obstacles in quiet times are ignored in most cases. This is in the nature of volatile markets. Price fluctuations are large and only the large levels count.

The Bottom Line on Investment Strategies for Volatile Markets

Coincierge Icon 21 reverseInvestors should remain calm and focused despite extreme volatility. If you have a plan, you should stick to it. It is advisable not to be greedy and prefer take smaller positions. It can also help, Take profits off the tableif the trade goes in the right direction. In volatile markets, it is advisable to Momentum to follow, instead of finding the ultimate top or bottom. Extreme volatility is a Time of opportunity, however, this should be used wisely.

Last updated on August 12, 2021

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